Japan tax hike to affect servicemember spending

Pedestrians cross the crowded streets on a March 2014 evening in Tokyo's Shibuya area, a popular shopping and nightlife district. A 3 percent consumption tax increase set to take effect April 1 is expected to increase prices on many consumer items.

Eric Guzman/Stars and Stripes

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YOKOSUKA NAVAL BASE, Japan — Living in Japan is getting more expensive for U.S. servicemembers, as retailers and others prepare to raise prices in anticipation of a 3 percent consumption tax hike starting April 1.

The tax hike, which will go toward balancing Japan’s debt-ridden federal budget, will mean immediate price increases on train tickets, groceries and other daily purchases. And, consumer prices could rise even more if Japan’s economic policies lead to the 2 percent price inflation target officials are seeking as a means to jump-start the country’s stagnant economy.

The idea that Japan actually wants higher prices may perplex some servicemembers, since prices throughout the country are typically higher than in many of the most expensive cities in the United States. For example, a six-pack of mass-market canned beer, which is subject to consumption and alcohol taxes, normally costs $12 or more at a grocery store.

However, government officials want to end the persistent deflation that has stymied Japan’s economic growth and prevented wages from rising since the 1990s.

It remains unclear how the tax hike will affect the cost of living adjustment Defense Department personnel stationed outside the U.S. mainland receive to make up for higher prices.

A tax hike would presumably mean an increase, but if the yen weakens, the COLA increase could get canceled out in some part by the added purchasing power the U.S dollar would then command.

COLA is also determined, according to the Defense Travel Management Office, through data from an annual retail price survey and another survey conducted every three years that examines living patterns.

Defense Department personnel who were hired locally and do not receive COLA can expect a drop in their buying power, according to economists who spoke with Stars and Stripes. For example, real disposable income for a single worker earning 5 million yen ($50,000) annually will drop about 69,500 yen ($695), said Shungo Koreeda, a researcher at the Daiwa Institute of Research.

Japanese with families will receive child allowances beginning this year to partially offset the drop in income, but Koreeda noted that most Defense Department personnel won’t be eligible for Japanese tax breaks.

“People should think that a 3 percent tax increase will be subject to everything they buy,” Koreeda said.

Servicemembers who regularly ride trains will notice increases by 10 yen to 20 yen per ticket if they purchase their tickets directly. Those using fare cards like Suica or Pasmo in the Tokyo area will see increases of only a few yen per trip. Disneyland Tokyo, a popular attraction for base families, has announced a 100 yen to 200 yen price hike per ticket, beginning in April.

Calculating prices is getting more complicated in some shops. Several supermarket chains have announced that they will switch to a U.S.-style system of labeling items with pre-tax prices, adding tax later at checkout. A few have already made the switch. Many stores have prepared posters to notify customers if they are switching to pre-tax labeling, but non-Japanese readers probably haven’t noticed.

“There is no obligation to make the announcements in English, so it may raise some trouble” for DOD personnel, Koreeda said.

Miki Ohata, an economist at Mitsubishi UFJ Research and Consulting, does not think the economy will suffer from the tax hike, though her company’s forecast indicates that consumer spending is up now and will drop about 2.5 percent from April through June. One positive sign is that multiple large companies have announced wage increases in advance of the tax hike, Ohata said. If smaller companies follow suit, it could negate some of the tax’s negative effects, she said.